Aditya Birla Group’s flagship company Grasim Industries, which is the world’s largest producer of viscose rayon fiber, has sold its entire fertiliser business to Indorama Corporation for Rs 2,649 crore in cash. The Singapore-based company will acquire Indo Gulf Fertilisers through its local unit Indorama India Pvt. Ltd. There is no change in shareholding pattern as the company will be transferring the entire fertiliser business to Indorama India — all assets, liabilities, litigations, brands and employees of the company —on a slump sale basis for cash consideration. The transaction is proposed as Slump Sale transaction through scheme of arrangement. The transaction is circa 2x of its net worth of Rs 1337 crores and circa 1x of its turnover of Rs 2680 for FY 20.

The fertilizer unit — Birla Shaktiman brand — sold to Indorama India is located at Jagdishpur in Uttar Pradesh and produces urea, and other customised fertilizers along with Agri-inputs, crop protection, plant and soil health products and specialty fertilisers. Indorama India Pvt Ltd is a step-down subsidiary of Indorama Corp which is the largest producer of urea and phosphate fertilisers in sub-Saharan Africa and the largest producer of polyolefins in West Africa.

The transaction is likely to be completed within nine months and is subject to necessary statutory and regulatory approvals including approvals of the National Company Law Tribunal, stock exchanges, Securities and Exchange Board of India, Competition Commission of India, and the respective shareholders and lenders of each of the companies.

Why Grasim sold its fertiliser business

Grasim said in a media release that the sale is a significant “value unlocking” exercise and will help the company pursue growth opportunities in its core businesses. In fact, one of the major reasons for the selloff was that Grasim wanted to sell out its non-core business and use the money to invest in their core businesses. Moreover, the fertiliser sector is tightly regulated and has a low return on capital employed because of high working capital and a long cycle of receivables. In fertiliser business, most times the working capital gets blocked due to delay in recovering of subsidy from the government. Companies must continuously monitor and follow-up the payments from the government authorities.

Further, it requires large Maintenance capex which results into negative free cash flow.

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